BSOG 3.4 Information provided to Members

Section 98(1) of and Part I of Schedule 17 to the 1986 Act require a building society which desires to transfer its business to a company to send a statement relating to the proposed transfer to every member entitled to notice of a meeting of the society. This may be either a Transfer Statement or a Transfer Summary, and is to be included in or with the notice of the meeting at which the Transfer Resolutions are to be moved. If a Transfer Summary is sent, then the society must also make the Transfer Statement available forthwith, free of charge, to every member who asks for it. The Treasury has power to make regulations for the purpose of specifying the matters of which Transfer Statements and Transfer Summaries are to give particulars. No Transfer Statement shall be sent or made available unless its contents, so far as they concern the matters so specified, and any other matters which the Authoritymay require in the case of a particular transfer, have been approved by the Authority. The Transfer Summary, however, is not required to be approved by the Authority.

The Transfer Statement has to contain the particulars of the "prescribed matters" which are set out in Schedule 1 to the Transfer Regulations. It must also include particulars of any other matters which the Authoritymay require (paragraph 3(1)(b) of Schedule 17 to the 1986 Act). Note that Regulation 3(2) of the Transfer Regulations provides that if a particular matter is not ascertainable at the time, a forecast may be given; for example, of the percentage amount of the Statutory Cash Bonus, or of the division of any distribution of shares or cash among different classes of recipient (see subparagraph (c)). The principal matters which a Transfer Statement must contain can be summarised as follows:

1. (1)

   a factual statement of the strategic options considered by the board and the reasons why it decided to recommend the particular proposals being put to the members. In the case of a takeover, the board must also provide a valuation of the business compared with the consideration which is proposed to be paid by the successor company, and state whether it considers the offer price to be fair and reasonable;

2. (2)

   disclosure of the names of any building societies or companies from which written proposals for merger or takeover were received within the preceding 12 months as required by Regulation 3 of the Transfer Regulations. The fact of the proposal, the name of the proposer and the terms of the proposal must be disclosed, unless the proposer has requested either that the whole matter, or just the terms of the proposal, be treated as confidential. An invitation to discuss a possible merger or takeover would probably not constitute a "proposal". A society should consider carefully, and take advice on, whether any approach it has received does qualify as a disclosable proposal. If no proposals have been received that fact could be stated in the Transfer Statement, for the avoidance of doubt;

3. (3)

   details of any share and/or cash distribution scheme, as provided by the Transfer Agreement, and showing separately the estimated amount of the benefits (if any) to be conferred on members, Trustee Account Holders, and on others such as employees and pensioners of the society, and giving information about the value of any shares including, if unquoted ordinary shares, an illustrative estimate of the market price of the shares if they had been issued at some specified date within the previous 6 months;

4. (4)

   the consequences of the transfer for members of the society, including a clear explanation of the potential effects on interest rates and containing, in particular, a factual statement of changes in the factors relevant to the determination of interest rates on retail deposits and loans by the successor company compared with the society (having regard to the need for the company to pay dividends to its shareholders), and including any change in the terms on which deposits are to be held and any changes in the applicable terms of the statutory protection scheme and complaints handling arrangements;

5. (5)

   the consequences of the transfer for employees of the society, including any changes in the branch structure or economies in head office departments;

6. (6)

   the financial interests of the directors and other officers arising from, or as a consequence of, the transfer. If directors or other officers have no financial interests in the transfer, either by way of increased emoluments, compensation or other benefits, this should be stated explicitly, for the avoidance of doubt;

7. (7)

   the main features of the published consolidated annual accounts of the society group for the last 3 financial years and its current financial position, including the amount of the society's reserves, at a date not more than 6 months prior to the date of the Transfer Statement;

8. (8)

   in the case of a takeover, the main features of the published annual accounts of the successor company group for the last 3 financial years, its current financial position at a date not more than 6 months prior to the date of the Transfer Statement, and key business indicators of the society group and the successor company group for each of the past 3 financial years. If the successor company is a significant subsidiary within a group, the Authoritymay require corresponding information about the company alone to be given;

9. (9)

   the future financial prospects of the successor company;

10. (10)

    the intended range and relative importance of the activities of the successor company and any change proposed following the transfer;

11. (11)

    in the case of a takeover, the structure and activities of any group to which the successor company belongs;

12. (12)

    a summary of the provisions of the Transfer Agreement concerning the conditions precedent to its completion and providing for its termination;

13. (13)

    a statement as to whether the transfer will conflict with any contractual obligations of the society (which would include agency agreements);

14. (14)

    the total estimated costs and expenses of the transfer, together with (if applicable) the estimated amount of, and the terms on which, fees and disbursements will be paid to advisers, such as merchant bankers, relating to the valuation of the business;

15. (15)

    responsibility statements by the directors of the society and the successor company, and opinions of the external auditors and any other experts, such as merchant bank advisers;

16. (16)

    if a Transfer Summary is issued, a statement that the full Transfer Statement will be provided free and on request and how it can be obtained.

A Transfer Summary may be sent, instead of the Transfer Statement, in or with the notice of the meeting at which the Transfer Resolutions are to be considered, to every member entitled to that notice. As its title indicates, the Transfer Summary must contain information derived from the Transfer Statement, particulars of which are prescribed by Schedule 2 to the Transfer Regulations: principally, that is, the matters described in paragraph BSOG 3.4.2 G, in summary form, excepting detailed financial information and terms of the Transfer Agreement. The basic qualifying conditions for a distribution of funds or shares might, for example, be summarised in the form of flow charts. More complex information, such as that relating to successors to deceased members, or second named joint account holders, should also be summarised with affected persons being referred to the Transfer Statement and, perhaps, special leaflets on particular terms.

Unlike the Transfer Statement, the Transfer Summary does not have to be approved by the Authority. It is to be compiled by, and on the responsibility of, the directors of the society and of the successor company. If a society decides to send a Transfer Summary, rather than the Transfer Statement, with the notice of the meeting, then the Transfer Summary must contain the director's responsibility statements and state that it has not been approved by the Authoritywhile the full Transfer Statement, which has been so approved, is on request available free of charge, to any member of the society to whom the Transfer Summary was sent, at any branch or office of the society or by post.

The Transfer Statement or Transfer Summary does not have to be a separate document. In practice it will usually be convenient to include it in a comprehensive Transfer Document which will also contain the notice of the meeting at which the Transfer Resolutions are to be moved, an explanation of the transfer procedure (including details of the confirmation stage - see section 3.6) and a description of the requirements of the society's Rules concerning entitlement to vote. It may also be convenient to include additional material required by the Authorityin connection with a flotation. However, the statutory Transfer Statement or Transfer Summary within the Transfer Document should be clearly identified as such (either by printing it on a different colour of paper or by some other means). An illustrative example of the structure of a Transfer Document containing a Transfer Statement is given in Annex 1 to this chapter. A Transfer Document containing a Transfer Summary should take much the same form (in that case, the Transfer Statement made available to the members on request could be a separate document).

If shares in the successor company are proposed to be offered to members, either for subscription or free of charge, the society will need to consider whether and, if so, how it should combine the information relevant to the members decision on the proposed transfer, and that relevant to the share offer, in one document. The two requirements differ, particularly in extent. Combining the Transfer Statement and share prospectus may run the risk of confusing the issues for some members.

The Authorityand its staff may be willing, but only if time and its resources permit, to comment informally on material additional to the statutory Transfer Statement which the board proposes to put to the members. The Authorityconsiders that, if asked, it can best help the board and the members' by making informal comments at the formative stage. However, it will only comment on the clear understanding that the final decision on what information to put to the members outwith the Transfer Statement is for the board to decide. The Authorityis conscious that it may have to assess such additional material in the light of representations on the society's application for confirmation of the proposed transfer, and any comments which it does offer are without prejudice to its position in those proceedings.

However, the Authoritycannot undertake the additional work of reviewing and commenting upon the draft Transfer Summary. As is noted in paragraph BSOG 3.4.4 G, the board alone is responsible for ensuring that the Summary fairly and accurately summarises the prescribed information in the Transfer Statement, and that it fulfils the requirements of the 1986 Act and the Transfer Regulations. As with the other information provided to the members in addition to the Transfer Statement, the Authoritywill review the Transfer Summary at the confirmation stage of the transfer procedure.

The Transfer Regulations, deliberately confine the particulars required to be included in the statutory Transfer Statement to information which is factual and which can be verified by a society and its professional advisers, including factual statements of the reasons why the board decided to recommend the transfer and its terms (which may include statements of the board's belief and opinions, clearly identified as such) and the options it considered for the future conduct of the society's business, all of which can be verified by reference to the board's minutes and papers. A board may choose to engage in more general advocacy of the merits or fairness of its proposals elsewhere in the documents sent to members, in which case, the Authoritymay have to have regard to whether such material is consistent with the information given in the statutory Transfer Statement when it comes to consider an application for confirmation.

The whole Transfer Document should be covered by responsibility statements by the directors of the society and the successor company. This may be given along the following lines (either a joint statement or separate statements by each board):

"The directors of ... Building Society and the directors of ... accept responsibility for the information relating respectively to the society and the company which is contained in this document. To the best of the knowledge and belief of the directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information".

It will be helpful to both the society and the Authorityfor the society to consult the Authorityabout the outline structure of, and main features to be contained in, the Transfer Document at an early, formative stage. The Authoritywill also be prepared to consider a full specification of the proposed cash or share distribution scheme. Thereafter, a formal written application for approval of the statutory Transfer Statement must be made to the Authorityby, or on behalf of, the board and accompanied by a draft Transfer Statement which should be as complete as is reasonably practicable at that stage, together with the fee prescribed by the current Fees Rules.

The Authority will then consider the application and decide whether or not to approve the Transfer Statement. It must satisfy itself that:

1. (1)

   in its opinion, the terms of the transfer scheme described in the Transfer Statement are consistent with the 1986 Act;

2. (2)

   the Transfer Statement contains particulars of the matters required by the Transfer Regulations;

3. (3)

   there is no further material information which it appears to the Authority, on the basis of what it knows at that time, is relevant to the decision of the members and is appropriate to the Transfer Statement (since that Statement carries the explicit approval of the Authority);

4. (4)

   the information in the Transfer Statement is presented clearly, in a balanced way, is consistent with the facts as known to the Authority, and is supported by responsibility statements from the directors and by opinions from the society's auditors and advisers.

For that purpose, the Authority will require supporting documentary information, including, in particular:

1. (5)

   the draft Transfer Agreement, which will incorporate a full specification of the transfer distribution scheme (the Transfer Statement by itself being an inadequate basis for considering the legal issues);

2. (6)

   a description, supported by opinions of the society's auditors and legal advisers, of the terms of the proposed scheme of distributions of funds or shares to members, Trustee Account Holders and others, including the systems and procedures required to make the distributions and copies of the notices and other documents to be used;

3. (7)

   in the case of a specially formed company, the draft articles of association of the successor company (including the requisite protective provisions);

4. (8)

   the Rules of the society (6 copies);

5. (9)

   the full accounts and auditors' reports on which the financial information is based;

6. (10)

   a checklist of the information required by the Transfer Regulations showing where each item may be found in the draft Transfer Statement.

The process of consideration will consist of discussions and correspondence between the Authorityand the society, which are likely to lead to the production by the society of one or more redrafts of the Transfer Statement to take account of the Authority'scomments, and refinements proposed by the society, to improve the clarity, completeness and drafting of the Statement. Clearly, the time necessary to complete this process will depend upon the quality and completeness of the draft Statement submitted with the first application, the complexity of the proposed terms of the transfer and whether they include any novel features, and whether it proves necessary to apply to the High Court for the determination of any legal issues. The Authoritywill seek to deal with the process efficiently and expeditiously. However, its speed of response will necessarily be affected by the factors referred to above as well as the commitments and priorities of the Authority'srelevant resources. The draft Transfer Statement must also be fully verified, to the satisfaction of the board, which process may be expected to take up to 6 weeks.

The Fees Rules provide that a further fee is payable by the society each time it submits a revised draft Transfer Statement to the Authorityfor approval. However, the Authoritymay waive or reduce the additional fee where it is satisfied that the revisions to the original, or previous, draft are not substantial.

When the society has settled on the final draft of a Transfer Statement which the Authorityis minded to approve, the society should submit two authenticated copies of the final draft Transfer Statement to the Authoritywith the following documents:

1. (1)

   a certified copy of the Transfer Agreement made between the society and the successor company;

2. (2)

   the Memorandum and articles of association of the successor company;

3. (3)

   a checklist of the information required to be included in the Transfer Statement pursuant to the Transfer Regulations;

4. (4)

   certified copy of an opinion from the society's auditors pursuant to paragraph 17 of Part I of Schedule 1 to the Transfer Regulations;

5. (5)

   certified copies of any other experts' reports or opinions which appear or are referred to in the Transfer Statement;

6. (6)

   certified copy of an opinion from the successor company's auditors pursuant to paragraph 17 of Part I of Schedule 1 to the Transfer Regulations;

7. (7)

   statutory accounts of the society and its connected undertakings for the previous 3 financial years, together with a reconciliation between those accounts and the figures appearing in the Transfer Statement;

8. (8)

   in the case of an existing company, consolidated statutory accounts of the company/group for the previous 3 financial years, together with a reconciliation between those accounts and the figures appearing in the Transfer Statement;

9. (9)

   certified copy of a letter of consent from the society's auditors relating to the issue of the Transfer Statement;

10. (10)

    in the case of an existing company, certified copy of a letter of consent from the successor company's auditors relating to the issue of the Transfer Statement;

11. (11)

    certified copy of a letter of consent from the Banking Regulator relating to the issue of the Transfer Statement with the inclusion of a statement as to the willingness of the Banking Regulator to authorise or, as the case may be, to continue to authorise the successor company on terms which will enable it to carry on the business it will have as a result of the transfer;

12. (12)

    certified copies of letters of consent from any other experts relating to the issue of the Transfer Statement with the inclusion of any reports or opinions referred to in paragraph BSOG 3.4.15G (5);

13. (13)

    certified copies of responsibility letters signed by the directors of the society (see paragraph BSOG 3.4.10 G);

14. (14)

    certified copies of responsibility letters signed by the directors of the successor company (see paragraph BSOG 3.4.10 G);

15. (15)

    certified copies of the minutes of the boards of the society and the successor company approving the Transfer Statement, the Transfer Agreement and related documents and approving the release of the responsibility letters mentioned in BSOG 3.4.15G (13) and BSOG 3.4.15G (14) (respectively) to the Authority;

16. (16)

    an assurance from the directors of the society concerning the society's register of members and its systems (see paragraph BSOG 3.4.15 G);

17. (17)

    a declaration by the directors of the society, and a similar declaration (as appropriate) by the directors of the successor company, along the following lines:

    "We confirm that the statutory Transfer Statement was approved at a meeting of the Board of Directors of the Society held on (..........). The Directors of the Society agreed that copies of the responsibility letter could be made available to the Financial Services Authorityin connection with this application. We also confirm that apart from the inclusion of [..........................] no other changes have been made to the statutory Transfer Statement from the Pre-Approval proof dated (.................................) handed to you on (..........................) and that no changes have been made to the Transfer Agreement from the draft dated (.......................) and handed to you on (.................................)."

    "We hereby request pursuant to our application dated (.........................), that the Financial Services Authorityapproves, in accordance with paragraph 4(3) of Schedule 17 to the 1986 Act, the contents of the statutory Transfer Statement so far as they concern the prescribed matters (as defined in paragraph 1 of that Schedule) and any matter of which particulars are required to be given under paragraph 3(1)(b) of that Schedule."

The Authority'sstatement of approval of the Transfer Statement will be given as is set out in Annex 1.

The Authority'sapproval of the Transfer Statement will be confirmed by returning to the society one authenticated copy of the Transfer Statement with the Authority'scertificate of approval signed by an authorised signatory for the Authority. The society will be asked to give 50 copies of the printed Transfer Document and Transfer Summary, if any, to the Authoritywhen they are available. There is no statutory requirement for copies of the Transfer Statement and Transfer Summary to be placed on the public file of a society but, because they are both public documents, the Authoritywill arrange for copies of the Transfer Document and Transfer Statement, if printed separately, to be placed on the public file. If a public announcement of the transfer proposal is not to be made until after the Authorityhas approved the Transfer Statement, or until the Transfer Document is sent to the society's members, the Document and Statement will not be placed on the public file until after the announcement. None of the other documents referred to in paragraph BSOG 3.4.15 G above will be placed on the public file.

The number of copies of the Transfer Statement to be printed will, of course, depend upon whether a society intends to distribute a Transfer Summary to its members with the notice of the general meeting. In that case, the society must make its own judgement about the number of copies of the full Transfer Statement to be printed, bearing in mind the requirements of paragraph 4(2) of Schedule 17 that sufficient copies must be available at every office or branch of the society and for despatch by mail.

A Transfer Document is bound to be lengthy and somewhat complex. It has to contain a lot of information, but its complexity will depend to a large extent on the terms of the transfer, particularly the transfer distribution scheme, proposed by the board. Bearing in mind that the purpose of the Transfer Statement is to provide information to the generality of members, it should be written in a clear and concise style and, so far as possible, in plain English. The Authoritywill be concerned that, because the statutory Transfer Statement is largely concerned with matters of fact, those matters are presented clearly and unambiguously. To the extent that it is necessary to include statements of the opinion or belief of the board, those statements should be clearly identified as such in the Transfer Statement. The board's views on the fairness and merits of the proposed transfer and its terms will form a separate part of the Transfer Document, as discussed in paragraph BSOG 3.4.9 G. Annex 1 suggests a structure for the Transfer Document which is designed to present its readers with a clear and logical sequence of topics. The Authoritysuggests that one of the main tasks of the society's project manager (see paragraph BSOG 3.2.13 G) should be to ensure that the Transfer Document is drafted in a clear and concise style. This will be a great help in achieving the Authority'sapproval of the Transfer Statement, and the board's verification of the whole Transfer Document, without undue difficulty and within a reasonable timescale.